The Capital Markets Authority (CMA) has announced the admission of the Central Depository and Settlement Corporation (CDSC) to the Regulatory Sandbox to test its proposed screen-based Securities Lending and Borrowing (SLB) platform for a period of five months from 07 April 2020.
The CMA Acting Chief Executive, Mr. Wyckliffe Shamiah, lauded CDSC for their contribution to enhancing liquidity in the capital markets through their SLB model, which has enormous potential, if successful.
Mr. Shamiah observed, ‘’Making the Kenyan capital markets vibrant and liquid is a key priority for the capital markets industry, which is aligned to the ambitions of the Regulatory Sandbox to facilitate this through innovative solutions’’. While the Capital Markets (Securities Lending, Borrowing and Short-Selling) Regulations 2017 envisages a bilateral model of SLB, the test of the Screen-based model will ensure that any investor can perform an SLB transaction through approved Central Depository Agents. If the test is successful, the current Securities Lending and Borrowing Regulations will be amended to include the screen-based model and address other issues which have hampered the uptake of the bilateral SLB product.
Mr. Shamiah added that the CDSC initiative is aligned to the Authority’s mandate of promoting the development of Kenya’s capital market to be an investment destination of choice through facilitative regulation and innovation anchored in the Strategic Plan (2018-2023) and the Capital Market Master Plan (2014-2023).
CDSC is the fourth firm to be admitted to the Regulatory Sandbox. Others include Innova Limited and Pezesha Africa Limited. Innova is testing its cloud-based data analytics platform, while Pezesha is testing an internet-based crowd-funding platform through which investors can provide loan facilities for Small and Medium Enterprises.
‘’The Regulatory Sandbox allows live testing of innovations under a less onerous regulatory regime and is expected to attract fintech companies and existing capital markets licensees to test the application of technology to financial services’’, added Mr. Shamiah.
Sandbox participants are required to comply with minimum regulatory requirements prescribed by the Regulatory Sandbox Policy Guidance Note (PGN) such as submission of test plans, which outline key test objectives, testing metrics, performance indicators, safeguards and remedial measures for test clients.
The Regulatory Sandbox was facilitated through approval of the PGN in March 2019, which indicates that the Authority can revoke or suspend an approval to participate in the Regulatory Sandbox at any time before the end of the test period and can take enforcement action against a participant in breach of the regulatory requirements.
Upon exit from the Sandbox, CDSC could be granted a license or approval to operate in Kenya subject to compliance with existing legal and regulatory requirements. The Authority may in the alternative grant permission to operate in Kenya subject to compliance with the terms of a letter of no objection.